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(Provisional Translation) Statement by Prime Minister Junichiro Koizumi on the "Guidelines for Formulation of the FY2005 Budget" (Cabinet Decision) Responding to the Proposals of the Council on Economic and Fiscal Policy December 3, 2004

Today, based on the proposal of the Council on Economic and Fiscal Policy, the "Guidelines for Formulation of the FY2005 Budget" was decided by the Cabinet. In the Guidelines, we have continuously carried forward from the previous year the policy of realizing a "Budget for Reform Resolution" in the formulation of the FY2005 Budget. I have promoted reforms under the conviction of "leave to the private sector what it can do" and "leave to the localities what they can do." With progress in the structural reforms, the buds of reform are now coming to be seen. In order to nurture the buds into a large tree, we must implement structural reforms across various areas in an integrated, consistent and swift manner. Bearing such necessity in mind, I have been instructing the relevant ministers to make respective efforts to promote reforms during the meetings of the Council on Economic and Fiscal Policy and other opportunities. Based on its outcomes, the "Guidelines for Formulation of the FY2005 Budget" indicates the concrete direction of reforms in such areas as local finances, social security system and development of social infrastructure. Particularly, the Guidelines intend to attain steady advancement in the three-part reform package of "leaving to the regions what they can do," bringing the discussion from a level where the general principle is welcomed to one where individual issues are realized. Based on the "Basic Policies for Economic and Fiscal Management and Structural Reform 2004," the government will work together as one and engage in efforts for the reform of the state subsidy system, transfer of tax sources and reform of local allocation tax, in accordance with the agreement reached at the meeting of the government and ruling parties on November 26, 2004 concerning the overall picture of the three-part reform package until FY2006. These results shall then be appropriately reflected in the budget for FY2005. Through such a process, we will promote the construction of simple and efficient administrative and financial systems at the central and local governments. We must further promote the expenditure reform to establish a sustainable fiscal structure and improve the quality of the budget. Taking into account the current economic situation and the trend in tax revenue, in the FY2005 Budget the new issuance of government bonds should be curtailed much as possible with a view to lowering the level from that in FY2004. We will furthermore continue to actively promote administrative reform, including the reduction in the fixed number of civil servants. We will also engage in measures for the improvement and development of "human resources" together with efforts to ensure the safety, reassurance and security for the people. We will endeavor to revitalize the regional economy through such means as establishment of a full-scale framework of regional revitalization. The Cabinet will work as one to formulate a FY2005 Budget that conforms with the "Budget for Reform Resolution."